CBAK Energy Technology, Inc.

Good day, ladies and gentlemen. Thank you for standing by and welcome to CBAC Energy Technologies' third quarter 2023 earnings conference call. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now, I will turn the call over to Thierry Lee, CFO and Secretary of the Board. Mr. Lee, please proceed.

Thank you, operator, and hello, everyone. Welcome to CBAG Energy's third quarter of 2023 earnings conference call. Joining us today are Mr. Yunfei Li, chief executive officer of CBAG Energy, myself, chief financial officer and secretary of the board, and Jennifer, our interpreter. Our general engineer, Mr. Xiu Juntian, will join us for the Q&A section. We released our results earlier today. The press release is available on the company's IR website at ir.cbac.com.cn, as well as from Newswire Services. A relay of this call will also be available in a few hours on our IR website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Security Litigation Reform Act of 1995, Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the expectations expressed today. Further information regarding these and other risks and uncertainties is included in the company's public firings with the SEC. The company doesn't assume any obligations to update any forward-looking statements except as required under applicable laws. Also, please note that unless otherwise stated, All figures mentioned during the conference call are in U.S. stores. With that, let me now turn the call over to our CEO, Mr. Yunfei Li. Mr. Li will speak in Chinese, and I will translate his comments into English. Go ahead, Mr. Li. Please don't click on it.

Thank you, Jerry. Hello, everyone. Thank you for attending our conference call today.

Thank you, and for everyone. Thank you for joining our earnings conference call today.

We are very happy to achieve another bright season growth in the battery business. In the third quarter, our battery business revenue reached $4.433 million, which increased by 71.51% compared to the same period of operating losses last year. This quarter, the operating profit reached $758 million and achieved a net profit of $777 million. is 6.3 times the same as last year. In terms of product details, the battery income in the storage industry has reached $4.281 million, which is 73.5% of the total growth. The battery income in the truck industry has reached $400,000, which is 19.5% of the total growth compared to last year. The battery income in the light-engine electric vehicle industry reached $111,000, a 2.8% decline. At the same time, the battery business revenue in the previous nine months increased by 44.43% to $9.616,000. The operating profit reached $615,000, and the actual net profit was $675,000. The growth of our performance is mainly due to the firm foundation of large customers, especially high-end customers from Europe and the United States. We see that the orders from this customer group are very stable and have strong continuity. We are confident that we will continue to maintain stable and high-speed performance and profit growth in the next few reports. Currently, the market is still facing global economic growth, slowdown, etc. We are very happy to be one of the few Chinese battery industries that still maintains high-speed growth and achieves profitable enterprises in such a big environment. For this reason, we have also gained the trust of many private investors to contact us and pay high attention to our project situation.

We are delighted to achieve another outstanding quarter of growth in our battery business. In the third quarter of 2023, our battery business generated revenues of $44.33 million, soaring by 71.51% year over year. Compared to the operating loss recorded in the same period last year, during this quarter, we delivered an operating income of $7.58 million. and a net income of 7.77 million, which was 6.3 times that of the same period last year. Of these revenues, 42.81 million came from batteries used in energy storage applications, a surge of 73.5% year-over-year, while 0.4 million came from batteries used in electric vehicles, an increase of 19.5 times year-over-year. Moreover, revenues from batteries used in light electric vehicles were $1.11 million, down 2.8% year-over-year. For the first nine months of 2023, our battery business generated revenues of $96.16 million, an increase of 44.43% year-over-year, while delivering an operating income of $6.15 million, along with a net income of $6.75 million. The growth across our financial metrics was primarily attributed to our strong foundation of key clients, particularly high-value clients from Europe and the US. Orders from these clients have demonstrated exceptional stability and sustainability. We are confident in sustaining robust performance and profit growth in the upcoming reporting periods. Today, the market still faces various external pressures and challenges. including the global economy slowdown. We are proud to stand out as one of the few Chinese battery manufacturers achieving rapid growth and profitability amidst the current macroeconomic environment. Our remarkable performance has garnered substantial interest from private equity investors who have reached out to us regarding our latest developments. Thank you very much.

Next, let's take a closer look at the company's business development in the third quarter. As the global market becomes more and more well-known, our orders are also gradually increasing. As of November 1, 2023, we, Dalian, and Nanjing's two main battery production bases have received orders that have not yet been delivered, which amounted to 9 billion yuan. At present, the orders for Dalian's production base have been arranged. By the end of 2024, Nanjing's production base has also reported orders. The orders for future new customers Let me share a more detailed update on our business initiatives during the third quarter.

With our increased visibility and enhanced reputation worldwide, our order volume continued to rise. As of November 1, 2023, We have recorded approximately RMB 900 million in the combined value of orders we have received, but have yet to fulfill across our two main battery production facilities based in Dalian and Nanjing. Currently, orders for the Dalian facility have been scheduled toward the end of 2024, and our Nanjing facility is also overwhelmed. Incoming orders from new clients will be subject to further scheduling. In other words, both our revenue and profitability will maintain robust growth momentum over an extended horizon. Thank you very much.

In terms of customer orders that have been disclosed in the past, as of November 1, 2023, we are working with the global telecommunications and market leading company Delamihai, which is also a telecommunications and energy supply brand. The Brazilian company The amount of the co-ordination of the parent company has reached 4.32 million yuan. The amount of the co-ordination of the world's largest two-wheeled and three-wheeled car manufacturer, Kinpeng Group, has reached 5.359 million yuan. At the same time, we have continued to cooperate with the European well-known system manufacturer, Faceman Group. Since early 2023, Five. Regarding Korean initiatives already announced, as of November 1, 2023,

Our collaboration with Power OAK, the world's leading portable power station manufacturer and parent company of top-rated portable power supply brand, Blue TTI, has provided us with orders totaling around RMB 43.2 million. We also make great strides in our partnership with Jingpeng Group, the largest manufacturer of scooters and electric tricycles worldwide, generating orders amounting to roughly RMB 53.59 million. In addition, I want to highlight our continued initiatives with Wilsman Group, a leading European manufacturer of heating and cooling systems. Our productive collaboration has translated into orders totaling up to 116.5 million euros from the beginning of 2023 to November 1st. Another major partner of ours is Anker Innovations, one of the largest third-party accessory suppliers globally for Apple Incorporated's products. Following our signing in September, we have received orders from Anker Innovations amounting to RMB $58.35 million. It is understood that Anker Innovations will spur significant demand for our batteries and is expected to place monthly orders on a continued basis. Furthermore, I want to highlight the fact that we have been in deep discussions regarding various corporations, including providing product samples with several major customers from Europe and the U.S. We will keep our investors informed of any significant updates.

From the perspective of customer demand, we have increased our investment in production and development. In the third quarter, Our Dalian and Nanjing two production bases already have 1GW of production capacity. Among them, our subsidiary Dalian Zhongbi power battery is currently developing 46115 and 46157 type batteries. These are more popular than the market. The 46800 type battery is bigger. The new type battery will have a higher energy density and a longer life. It can be perfectly Our R&D team is continuously promoting the progress of these projects, and is expected to have the capacity to produce 46115-type batteries next year. This is when we talk about the expansion of the capacity of 46-type batteries in Dalian Ecotourism Base to 15 gigawatts, and further improve our supply capacity. At the same time, our Nanjing-27 project is also in the process of construction of Jinluomigu. With a focus on meeting client demands, we scale up our investment in production capacity and R&D.

In the third quarter of 2023, both our Dalian and Nanjing facilities have reached a production capacity of 1 gigawatt hour. Our subsidiary, Dalian CBIK Power, is currently engaged in the development of Model 46115 and Model 46157 lithium batteries, which are new to the market and larger than the current market favorite, Model 46800. With higher energy density and an extended lifespan, These new models are ideal for large-scale energy storage scenarios. Our R&D team is diligently driving these initiatives forward, and we expect to have the capacity to mass produce the model 46115 batteries next year. In the long-term plan, we will expand the production capacity for the series 46 batteries to 15 gigawatt hours at the Dalian facility, achieving further supply ramp-up. In the meantime, the construction of our Nanjing Phase 2 project has been in full swing. The factory roof has been completed, which enables 6 GWh of production capacity in the first stage. And we expect this production capability to be delivered, fully equipped, and operational soon. Hence, I wish to highlight that we will have great overall capacity next year to address the current overwhelming client demand. we will elevate our production efficiency and further propel top-line growth.

Finally, I would like to introduce the situation regarding the production of lithium-ion batteries. As the only company in China that has the capacity to produce lithium-ion batteries, we have done a deep analysis of the production of lithium-ion factory projects with many investors, and we are looking forward to complete a large amount of private financing. We believe that with the acceleration of the industrialization of lithium-ion battery, the lithium-ion battery will become the important development direction in various fields, such as the future of electric two-wheeled vehicles, low-speed four-wheeled vehicles, power stations, and home power products. In the future, we will not only have Li-ion battery capacity of 36GW, but also have the capacity of 10GW. We are looking forward to working with investors and partners to promote the development of new energy and environmental technology industries.

Finally and importantly, let me walk you through our mass production of sodium ion batteries. As the only company in China capable of mass producing sodium ion batteries, we have engaged in extensive discussions with multiple investors on building a sodium ion battery plant. In the near future, we expect to finalize a substantial amount of private equity financing to expedite the development of our sodium ion battery plant with a target production capacity of 10 gigawatt hours. With the accelerated industrial adoption of sodium ion batteries, we believe it will become a pivotal focus across various subsectors, such as electric scooters, low-speed vehicles, energy storage power stations, and household energy storage solutions. Looking ahead, the company will be empowered by a twin-engine growth model, an impressive 36 GWh production capacity of lithium batteries, and a remarkable 10 GWh production capacity of sodium-ion batteries. We look forward to collaborating with our investors and partners to advance the evolution of the new energy sector and environmental protection technologies.

Now let me turn the call over to our CFO Mr. Li who will provide details on our financial performance.

Thank you, Mr. Lee, and thank you, everyone, for joining our call today. I will now go over our key financial results for the third quarter of 2023. For the full details of our financial results, please refer to our earnings press release. As the battery business returned to year-over-year growth in the third quarter, we also recorded ongoing improvements in growth margin and operating profit margins. This was underpinned by a sharp increase in the contribution of our higher margin battery business and a reduction in the cost of revenues as we further leverage our technology to improve production efficiency. Alongside a growing number of orders for our battery products, we will continue to find the right balance between growth and profitability while investing in R&D and production capacity expansion to enhance our sustainable long-term competitiveness. Turning to our financial performance, our net revenue in the third quarter was 63.4 million, representing an increase of 9.9% compared to 57.7 million in the same period of 2022. This increase was primarily attributable to the growth in the company's battery business. In addition, our net revenue from batteries in the third quarter was 44.3 million, representing a strong growth of 71.5% from the same period in 2022. Our growth margin for the battery business in the third quarter was 26.4%, an increase of 17.7 percentage points from 8.7% in the same period of 2022. The cost of revenues in the third quarter was $51.2 million, representing a decrease of 5.7% from 54.3 million in the same period of 2022. The decrease in the cost of revenues corresponds to the company's higher gross profit from the battery segment. Gross profit in the third quarter was 12.2 million, representing an increase of 254% from 3.5 million in the same period of 2022. Growth margin in the third quarter was 19.3% compared to 6% in the same period of 2022. Our total operating expenses in the third quarter rose by 40.8% to 7 million. Within that, our research and development expenses increased by 8.1% to 2.6 million in the third quarter. Sales and marketing expenses increased by 33.8% to 1.1 million in the third quarter. General and administration expenses increased by 73.7% to 3.2 million. Our operating income in the third quarter amounted to 5.3 million compared to an operating loss of 1.5 million in the same period of 2022. The change in the fair value of our warrants in the third quarter was 0.02 million compared to 0.94 million in the same period of 2022. As a result, net income attributable to shareholders of CBIK Energy in the third quarter was 6.3 million compared to net loss attributable to shareholders of CBIK Energy of 290 in the same period of 2022. That concludes our prepared remarks. Let's now open the call for questions. Operator, please go ahead.

Thank you as a reminder to ask a question, please press the star one one on your telephone and wait for your name to be announced to withdraw your question, please press star one one again one moment for questions.

Our first question comes from Brian land here with jack small cap research, you may proceed.

Good afternoon, gentlemen. Really impressive performance in light of a challenging operating environment. If I could drill down a little bit more on the power, the uninterruptible power business. Do you feel like that was principally in the third quarter driven by new customer wins or higher volumes with your existing customer base? And it sounds like going forward, Some of the new customers are going to contribute a larger portion of that growth. Then I'll follow up with another question after that.

First of all, in such a challenging environment, our company's performance is so bright. I am very impressed with this. In addition, I would like to ask, the bright performance of our battery business in the third quarter is mainly due to the new orders from some new customers. Or is it because we have a huge customer base that we already have? And in the future, what kind of customers do you think will make a bigger contribution to our sales growth? Mr. Fei, please answer, and then I'll add to it.

Okay.

Our customers, the third-tier customers we just mentioned, are mostly our previously developed customers. Uh... What's the next question? There's another question.

You asked if there will be new customers for our next orders. For the next orders, especially for products like 32140, most customers have entered a stage of verification.

From the beginning of the small batch market, Now it has gradually entered the official mass production. So in the future, our sales performance will continue to grow. Can you repeat the electronic 42130 again?

Okay. Mm-hmm. okay so in response to your first question yes indeed the growth in our third season third quarter partly due to the existing customers that we have for example our customers of Dalian and Nanjing have have substantially increased their orders and that also leads to the growth of our sales volume. And besides that, we also have developed some new customers who also contribute to the growth of our sales. So this is the situation that you can see in the third quarter. And because of that, for example, for our model 32140, we have already passed the certification. So in terms of our production, we have started from a small lot production and gradually transformed into a fictional mass production. And we also believe that this will contribute to our further sales growth. And in the meantime, we are also expanding our production lines as well as our production capacity for the two sixth series projects. So we also believe that this will bring in more sales volumes in the future.

Great. Thank you so much for all of that. And could I... If I could just ask a question about the raw material business. I know in the past there's been some interest from outside investors. Is that something you're still exploring or, you know, I guess just an overall general update on the raw material business and where that stands today?

Okay, good.

Brian, I will respond to your questions. As you can see, the industry, the raw material industry is experiencing a slowdown. Almost all the raw material producers are suffering decline in sales volume. Same applies to Hightrends, our raw material unit. But Hightrends actually has a very, very decent and good client structure. Subset deal rates from CATL is also their client. So we believe that once the industry recovers, HITRANS will improve their financial performance sharply. And moreover, we didn't actually integrate HITRANS' business into our Bitcoin business. We act only as financial investors. Their team is completely independent from our team. That's why in our form 10Q and in our press release, we always separate the financial performance from high trends from our battery business that's much more reasonable so as you can say as you just say there are a lot of investors getting interested in high trends and we believe that once the industrial recovers they will be good so we encourage a lot of the private equity investors we will also refer a lot of the private equity investors to high trends for the purpose of funding them to expand their capacity and also to see if we'll be able to get with you from with those investors great thank you so much thank you and as a reminder to ask a question please press star 1 1 on your telephone one moment for questions

Our next question comes from Faye Kowu with TPG. You may proceed.

Hello, thank you, Manager Tang. I have two questions for you. The first question is, in our phone call, the company mentioned that the power supply project is being prepared and organized. I would like to ask, currently, From the point of view of power supply technology, what stage is the company currently in? And then can you briefly introduce the situation of our project?

Okay, so I would like to pose a question concerning the sodium ion battery. I'd like to know, in your speech you mentioned that you have been engaged in the preparation and the construction of sodium ion battery. I'd like to know if you can give us more updates about the technology that the company has with the sodium and battery? If we talk about the project investing implementation stage, at what stage is this project getting progress? Could you give me also another update?

Tian, let me answer this question.

Okay, let me answer this question. First of all, it's about the stage of our company's NaCl battery. Now it's like this. In June of this year, we released the first NaCl battery. At that time, we released mass production. So at this stage, the first mass production NaCl battery in China and even internationally is in our team. The rest of the know-it-all and businessmen have released NaCl products, but they are not available on the market. And our NaCl battery has completed the installation work this year. And there are domestic big companies already on UBI China China China China China This is a very good benchmark for us. Because most of the teams belong to the business team or the stage where the product has a sample. And our product has 0.5G production capacity. We have made it into a product. So now it's a stage of expanding production status. So now there are four governments. For example, we are connecting. Now we are choosing between U and U. Liqiu, for example, is in the near future. Choose one of them to land. In this way, next year, we will continue to release more large-capacity NaCl batteries. We expect to release 10-capacity NaCl batteries in this project, which will meet the order requirements of our double-customer customers. That's all.

You said that there are four centers and four customers. We are now selecting the location. Yes, the location. Okay. So in response to your first question, well, for sodium ion battery, in June this year, we released the first sodium ion battery products. And this is, we can say that in China, we are the first company to realize the mass production of sodium ion battery products. And although in the market, some of the competitors also announced that they are doing the research or production of these sodium ion battery products. However, we are the company that really can realize a mass production. And this year, we also achieved the installation of this sodium ion battery in the vehicle and the effect turned out to be really satisfactory. And for our battery products, it can realize 2,000 to even more than 3,000 rounds. So we can say we have already have a stable product system in place. And talking about the production line construction, well, we can say our company and our products is very popular. In the market, there were some other competitors, but they are only at a very early stage. For example, they only have their startup teams or they only have some samples. However, for us, for our company, Seabag have managed to come up with a product with 0.5 gigawatts and the production capacity will be expanded in the future. So at present, four partners has approached us and we are trying to select one place. What we can say for local governments have approached us, we are trying to select one place for the construction of the production line. And we are trying to select the best from the four. And then in the next year, we are even going to expand our production capacity to be as high as 10 gigawatts. And in that case, it will put us in a better position to cater to the demand of our customers.

Thank you. My second question is And in your introduction, you mentioned that feedback has become

business partner of anchor innovation and we'd like to know how big of the the the older volume of anchor will be and can you also share with us your expectation for your partnership with anchor um

How big is Anker's future supply? Here's the thing about Anker.

All of Anker's products are now on the market. Maybe in the future, 7 or 8 products will be using our products. Now, our customers are responding very well after a short period of time. They are now exporting to Europe, the US, India, and Japan. So we had a deep conversation with Anke a few days ago. In the near future, we might be at around 500,000 a month. In the future, we might be at around 800,000 to 1.2 million a month. That's the...

Oh, okay. Oh, okay. So at present Anker has already finished the opening of models here with our factory and seven to eight products of Anker will use our battery and actually they started their pilot production here and the results turned out to be great. That is why they decided to export products to Europe, the States, Japan, and India. And we already have an in-depth communication with Anchor talking about future cooperation and talking about deepening our future cooperation. And besides that, if we have a look at the expectation for the order volume at present, is about 500,000 items with an order value of about 20 million RMB. And in the future, it will be increased to, it is expected to be increased to 800,000 to 1.2 million items. And that is within order value of about 40 million RMB.

Thank you.

Seeing no more questions in the queue, let me turn the call back to Mr. Yunfei Li for closing remarks.

Thank you all for participating in today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress.

Thank you all again. This concludes the call. You may now disconnect.